Reducing greenhouse gas emissions in Russia. Requirements and mechanisms of new Russian legislation
Russia, as a party to the Paris Climate Agreement, does not lag behind other countries in the implementation of a system for reducing greenhouse gas emissions. In this article, we would like to briefly describe the upcoming changes in legislation to reduce greenhouse gas emissions and ways to reduce risks for Russian companies.
The key legislative act for Russian producers in this area is the Federal Law of 02.07.2021 N 296-FZ "On limiting greenhouse gas emissions" (hereinafter we will call it the Law on reducing greenhouse gas emissions or simply 296-FZ). The law was adopted in 2021, will come into force in 2022, and its main provisions from 2023.
The essence of the law is as follows:
- 1) Regulated organizations (these include enterprises emitting more than 150 thousand tons of CO2-equivalent from 2022, and from 2024 - 50 thousand tons) are obliged to submit verified reports on greenhouse gases to Rosprirodnadzor annually by July 1.
- 2) From 2022, the Government of the Russian Federation will set targets for greenhouse gas levels for enterprises (Article 6 of the Law). There is currently no exact information on these indicators. One has only to hope that initially the Government will not go for a high rate of reduction of greenhouse gas emissions.
- 3) A cadastre of greenhouse gas emissions appears, which is to be maintained by Rosprirodnadzor. This register will take into account all emissions of regulated organizations, as well as projects to reduce greenhouse gas emissions and the volume of carbon credits received. Projects for the reduction of greenhouse gases within the meaning of the law must be validated (confirmed) at the stage of their development by the validation bodies, and subsequently, after the implementation of such projects, the results of the implementation of projects by the verification bodies must be verified.
- 4) Companies will be able to trade carbon credits generated from projects to reduce greenhouse gases. The actual trading rules and the rules for entries in the greenhouse gas inventory will be separately established by the RF Government.
In fact, based on the text of the law, in our opinion, there are many questions left:
- 1) How should a company know that it is a regulated entity and must submit verified reporting on greenhouse gas emissions?
- 2) In our opinion, it is very important to determine the methodology for assessing greenhouse gas emissions by industry. To date, the legislator, in a by-law - Order of the Ministry of Economic Development of Russia No. 707 of October 26, 2020, has given a direction to use the methodology outlined in the GOST R ISO 14064 series of standards. However, the key problem is that this series of international standards is missing clear methodology by industry. Calculating the level of greenhouse gas emissions for metallurgists and electricity producers are quite different things. At the same time, there is a significant number of foreign methods, which we often use in our work, but they are convenient for voluntary practice, and are not particularly suitable for mass implementation throughout the country. In the absence of uniform methods, we run the risk of getting situations in which two identical plants with different methodological approaches will have different assessment results. This situation, in our opinion, may give rise to distrust of the system itself for reducing greenhouse gas emissions.
- 3) Based on the text of the law on reducing greenhouse gas emissions, the economic model of the law is unclear. You may or may not like the European ETS system, but it is based on clear quasi-market principles that motivate someone to reduce greenhouse gas emissions, and someone to purchase quotas. The Russian law on the reduction of greenhouse gas emissions at this stage is more like a New Year tree, which has not yet been decorated. In principle, today we understand only one thing for sure - all large enterprises will soon be obliged to estimate their emissions and subsequently reduce them. Only it is not yet clear how to reduce and under what conditions. Therefore, for now, we can only wait for the release of new bylaws that will be able to "dress up" the new law.
In our opinion, in this case, a lot of subjectivity can arise. Rosprirodnadzor, in fact, will independently decide whether the company is one of those who emit 150 thousand tons or more, or not. Therefore, the surest way to mitigate the risks of being included in regulated organizations is to assess emissions now and to verify the volume of emissions, to receive a verification report on greenhouse gas emissions from the verification authority. In this case, if Rosprirodnadzor obliges the company to submit reports, then the company will be able to objectively prove that it does not belong to regulated organizations.
In our experience, companies from the metallurgical, cement industry, producers of electricity, heat energy, fertilizers should take care of this issue in advance and reduce uncertainty in this matter.